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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-28480
EDIFY CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0250992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2840 SAN TOMAS EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(Address of principal executive offices)
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(408) 982-2000
(Registrant's telephone number, including area code)
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Indicate by checkmark whether the Registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes [X] No [ ]
As of June 30, 1997, there were 16,359,478 shares of the Registrant's common
stock outstanding.
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EDIFY CORPORATION
FORM 10-Q
INDEX
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<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION Number
<S> <C> <C>
ITEM 1: Financial Statements
Condensed Balance Sheets as of June 30, 1997 and December 31, 1996........... 3
Condensed Statements of Operations for the three and six months ended
June 30, 1997 and 1996................................................... 4
Condensed Statements of Cash Flows for the six months ended June 30, 1997
and 1996................................................................. 5
Notes to Condensed Financial Statements...................................... 6
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 8
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk................... 16
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings............................................................ 16
ITEM 2: Changes in Securities........................................................ 16
ITEM 3: Defaults Upon Senior Securities.............................................. 16
ITEM 4: Submission of Matters to a Vote of Security Holders.......................... 16
ITEM 5: Other Information............................................................ 17
ITEM 6: Exhibits and Reports on Form 8-K............................................. 17
Signatures................................................................... 18
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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EDIFY CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS: UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments ... $ 42,886 $ 44,840
Accounts receivable, net ............................ 12,762 8,837
Prepaid expenses and other current assets ........... 1,300 1,020
-------- --------
Total current assets ........................... 56,948 54,697
Property and equipment, net ............................. 6,735 5,790
Other assets ............................................ 234 234
-------- --------
Total assets ................................... $ 63,917 $ 60,721
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 1,341 $ 1,544
Current installments of capital lease obligations ... 404 404
Accrued expenses .................................... 5,650 5,128
Unearned revenue .................................... 3,838 3,751
-------- --------
Total current liabilities ...................... 11,233 10,827
-------- --------
Capital lease obligations, excluding current installments 552 707
Commitments and contingencies
Stockholders' equity:
Common stock ........................................ 16 16
Additional paid-in capital .......................... 65,552 64,208
Deferred compensation and other ..................... (304) (445)
Accumulated deficit ................................. (13,132) (14,592)
-------- --------
Total stockholders' equity ..................... 52,132 49,187
-------- --------
Total liabilities and stockholders' equity ..... $ 63,917 $ 60,721
======== ========
</TABLE>
See notes to condensed financial statements.
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EDIFY CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA: UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues:
License ............................... $ 7,807 $ 4,274 $ 14,939 $ 8,176
Services and other .................... 5,730 2,639 10,908 4,554
-------- -------- -------- --------
Total net revenues .................. 13,537 6,913 25,847 12,730
Cost of license revenues ................. 205 110 336 200
Cost of services and other revenues ...... 4,274 2,195 8,651 3,942
-------- -------- -------- --------
Gross profit ........................ 9,058 4,608 16,860 8,588
-------- -------- -------- --------
Operating expenses:
Product development ................... 2,511 1,335 4,609 2,470
Sales and marketing ................... 4,953 3,473 9,474 6,428
General and administrative ............ 1,155 629 2,182 1,135
-------- -------- -------- --------
Total operating expenses ............ 8,619 5,437 16,265 10,033
-------- -------- -------- --------
Income (loss) from operations ....... 439 (829) 595 (1,445)
Interest income, net ..................... 502 351 994 402
-------- -------- -------- --------
Income (loss) before income taxes ... 941 (478) 1,589 (1,043)
Provision for income taxes ............... 76 6 129 8
-------- -------- -------- --------
Net income (loss) ................... $ 865 $ (484) $ 1,460 $ (1,051)
======== ======== ======== ========
Net income (loss) per share .............. $ 0.05 $ (0.03) $ 0.08 $ (0.07)
======== ======== ======== ========
Shares used in computing net income (loss)
per share ............................. 17,953 15,077 17,948 14,344
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements.
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EDIFY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS: UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
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1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................. $ 1,460 $ (1,051)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization ................................... 1,508 613
Provision for returns and doubtful accounts ..................... 292 504
Amortization of deferred compensation ........................... 140 214
Changes in operating assets and liabilities:
Accounts receivable ........................................... (4,217) (1,435)
Prepaid expenses and other current assets ..................... (280) (279)
Accounts payable .............................................. (203) 351
Accrued expenses .............................................. 522 746
Unearned revenue .............................................. 87 815
-------- --------
Net cash provided by (used in) operating activities ........ (691) 478
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net .......................... (2,417) (2,303)
Purchases of short-term investments ............................... (6,391) (10,019)
Sales and maturities of short-term investments .................... 1,955 5,054
Other assets ...................................................... -- (67)
-------- --------
Net cash used in investing activities
(6,853) (7,335)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital lease obligations ................ (190) (191)
Net proceeds from issuance of common stock ........................ 1,344 39,235
-------- --------
Net cash provided by financing activities .................. 1,154 39,044
-------- --------
Increase (decrease) in cash and cash equivalents ...................... (6,390) 32,187
Cash and cash equivalents at beginning of period ...................... 33,704 1,182
-------- --------
Cash and cash equivalents at end of period ............................ $ 27,314 $ 33,369
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Supplemental schedule of cash flow information:
Cash paid during the period for interest .......................... $ 61 $ 63
Cash paid during the period for taxes ............................. $ 69 $ 8
Supplemental schedule of noncash investing and financing activities:
Property and equipment acquired under capital lease obligations ... $ 35 $ 259
Accrual of stock option deferred compensation .............$ ...... -- $ 303
</TABLE>
See notes to condensed financial statements.
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EDIFY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles and, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary to fairly state the Company's
financial position, results of operations, and cash flows for the periods
presented. These financial statements should be read in conjunction with the
Company's audited financial statements included in the Company's Form 10-K for
the fiscal year ended December 31, 1996. The results of operations for the
three- and six-month periods ended June 30, 1997 are not necessarily indicative
of the results to be expected for any subsequent quarter or for the entire
fiscal year ending December 31, 1997. The December 31, 1996 balance sheet was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
(2) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based upon the weighted average
number of shares of common stock outstanding and common equivalent shares from
stock options (under the treasury stock method, if dilutive).
For the six months ended June 30, 1996, net loss per share is computed
based on the weighted average number of shares of common stock outstanding and
common equivalent shares from stock options (under the treasury stock method, if
dilutive) and preferred stock outstanding (on an "as if converted" basis, even
if antidilutive). In accordance with certain SEC Staff Accounting Bulletins,
this computation includes all common and common equivalent shares (using the
treasury stock method) issued within 12 months of the Company's initial public
offering on May 2, 1996 as if they were outstanding for all periods prior to the
initial public offering using the initial public offering price.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." SFAS
No. 128 requires the presentation of basic earnings per share ("EPS") and, for
companies with potentially dilutive securities, such as options and warrants,
diluted EPS. SFAS No. 128 is effective for annual and interim periods ending
after December 15, 1997. The Company expects that basic EPS for profitable
periods will be higher than primary earnings per share as presented in the
accompanying financial statements and that diluted EPS for profitable periods
will not differ materially from primary earnings per share as presented in the
accompanying financial statements. Computations for loss periods should not
change significantly.
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(3) INVESTMENTS
Under the provisions of SFAS No. 115, debt and equity securities
classified as available-for-sale securities for which cost approximated market
value as of June 30, 1997 and December 31, 1996, with maturities generally
within one year, consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
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<S> <C> <C>
Government agency securities ........................ $ 11,176 $ 8,374
Commercial paper .................................... 5,583 8,172
Corporate bonds ..................................... 4,397 4,058
-------- --------
$ 21,156 $ 20,604
======== ========
</TABLE>
Gains and losses from sales of available-for-sale securities were not
significant for the three or six month periods ended June 30, 1997 and 1996.
(4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the statement, but requires the
Company to display an amount representing total comprehensive income for the
period in that financial statement. The Company is in the process of determining
its preferred format. This Statement is effective for fiscal years beginning
after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." The Statement establishes
standards for the manner in which public business enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. This Statement is effective for
financial statements for periods beginning after December 15, 1997, and is not
expected to have a significant impact on the Company's reporting of segment
information.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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This Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those indicated by the forward-looking statements herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
set forth below in "Factors That May Affect Future Operating Results" as well as
those discussed in the "Business Risks" section included in the Company's Form
10-K for the fiscal year ended December 31, 1996.
RESULTS OF OPERATIONS
NET REVENUES
Total net revenues were $13.5 million for the quarter ended June 30,
1997 as compared to $6.9 million for the comparable 1996 quarter, representing
an increase of 95.8%. Total net revenues were $25.8 million for the six months
ended June 30, 1997, an increase of 103.0% as compared to $12.7 million for the
same period a year ago. The Company's revenues are principally derived from
software licenses and fees for services, which are generally charged separately.
Revenues are recorded net of reserves for potential product returns and credit
losses, neither of which have been significant to date. In the three- and
six-month periods ended June 30, 1997 and 1996, 5% or less of the Company's
total net revenues were derived from international sales. Over time, the Company
intends to expand its operations outside of the United States and enter
additional international markets. International operations entail a number of
risks including those associated with product customization and regulatory
compliance, and there can be no assurance that such expansion will be
successful.
LICENSE REVENUES. License revenues were $7.8 million for the quarter
ended June 30, 1997 as compared to $4.3 million for the comparable 1996 quarter.
License revenues for the six-month period ended June 30, 1997 were $14.9 million
as compared to $8.2 million for the comparable period in 1996. The increases in
license revenues were attributable to an increase in unit volume as a result of
the market's growing awareness and acceptance of Electronic Workforce, revenues
from the Company's Electronic Banking System (introduced in September 1996), and
expansion of the Company's field sales force and indirect distribution channels.
The prices of the Company's licenses have remained relatively constant during
the comparable periods of 1997 and 1996. The Company does not believe that the
historical growth rates of license revenues will be sustainable or are
indicative of future results.
SERVICES AND OTHER REVENUES. Services and other revenues consist
primarily of fees from consulting, post-contract customer support and, to a
lesser extent, training and installation services. Services and other revenues
were $5.7 million for the quarter ended
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June 30, 1997 as compared to $2.6 million for the comparable 1996 quarter.
Services and other revenues for the six months ended June 30, 1997 were $10.9
million as compared to $4.6 million for the comparable period of 1996. Services
and other revenues increased as a percentage of total net revenues to 42.3% for
the quarter ended June 30, 1997, from 38.2% for the quarter ended June 30, 1996,
and increased to 42.2% for the six months ended June 30, 1997 from 35.8% for the
comparable 1996 period. The increases in services and other revenues in absolute
dollars and as a percentage of revenues occurred primarily due to increased
demand for consulting services, as well as increases in post-contract customer
support, training and installation services associated with the increased volume
of licenses of the Company's software. Consulting services primarily are
contracted for under time and material arrangements. The Company does not expect
historical growth rates of its services revenues to be sustainable in the
future. To the extent services and other revenues is a higher percentage of
total net revenues, overall gross profit margins may be adversely impacted.
COST OF REVENUES
COST OF LICENSE REVENUES. Cost of license revenues consists primarily
of the cost of product media, product duplication, documentation and royalties
paid to third parties under technology licenses. Cost of license revenues was
$205,000 and $110,000 for the quarters ended June 30, 1997 and 1996,
representing 2.6% of the related license revenues for each quarter. Cost of
license revenues was $336,000 for the six months ended June 30, 1997 as compared
to $200,000 for the comparable 1996 period, representing 2.2% and 2.4% of the
related license revenues for the respective periods. If the Company were
required to obtain licenses from third parties under patent or other
intellectual property rights, the cost of license revenues could increase
significantly.
COST OF SERVICES AND OTHER REVENUES. Cost of services and other
revenues consists primarily of personnel-related costs and fees for third-party
consultants incurred in providing consulting, post-contract customer support,
training and installation services to customers. Cost of services and other
revenues was $4.3 million and $2.2 million for the quarters ended June 30, 1997
and 1996, representing 74.6% and 83.2% of the related services and other
revenues for the respective quarters. Cost of services and other revenues was
$8.7 million for the six months ended June 30, 1997 as compared to $3.9 million
for the comparable 1996 period, representing 79.3% and 86.6% of the related
services and other revenues for the respective periods. The increases in
absolute dollars for the comparable quarterly periods were due primarily to
increases in personnel-related costs as the Company continued to expand its
consulting, customer support, training and installation services organizations.
The cost of services and other revenues as a percentage of services and other
revenues may vary between periods due to the mix of services provided by the
Company and to varying levels of expenditures to build the services
organizations. Any significant decline in the demand for the Company's
consulting services would have a material adverse impact on the Company's
revenues and, as a result of the under-utilization of consulting personnel, on
the Company's gross profit and results of operations.
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PRODUCT DEVELOPMENT
Product development expenses were $2.5 million and $1.3 million, or
18.5% and 19.3% of total net revenues, for the quarters ended June 30, 1997 and
1996, respectively. Product development expenses were $4.6 million and $2.5
million, or 17.8% and 19.4% of total net revenues, for the six-month periods
ended June 30, 1997, respectively. Product development expenses consist
primarily of salaries and other related expenses for research and development
personnel, as well as the cost of facilities and depreciation of capital
equipment. The increases in absolute dollars for the comparable periods were
attributable primarily to increased staffing related to development of
application products, the development of a version of Electronic Workforce to
run on Windows NT, and ongoing enhancements to Electronic Workforce. The
reductions in product development expenses as a percentage of total net revenues
from 1996 to 1997 were due primarily to the growth in total net revenues. The
Company believes that significant investments in product development are
required to remain competitive. As a result, the Company expects that product
development expenses will increase in absolute dollars in the future and will
not decline significantly as a percentage of total net revenues from their
current levels. The failure to develop and introduce Windows NT versions of its
products on a timely basis would have a material adverse affect on the Company's
business and results of operations.
In accordance with Statement of Financial Accounting Standards No. 86,
the Company capitalizes eligible computer software development costs upon the
achievement of technological feasibility, subject to net realizable value
considerations. The Company has defined technological feasibility as completion
of a working model. To date, such capitalizable costs have not been material.
Accordingly, the Company has charged all such costs to product development
expenses in the accompanying statements of operations.
SALES AND MARKETING
Sales and marketing expenses were $5.0 million and $3.5 million, or
36.6% and 50.2% of total net revenues, for the quarters ended June 30, 1997 and
1996, respectively. Sales and marketing expenses were $9.5 million and $6.4
million, or 36.7% and 50.5% of total net revenues, for the six-month periods
ended June 30, 1997 and 1996, respectively. Sales and marketing expenses consist
primarily of salaries and commissions earned by sales and marketing personnel
and promotional expenses. The increases in absolute dollars for the comparable
periods were due primarily to the expansion of the Company's field and indirect
sales operations and increased marketing activities. The reductions in sales and
marketing expenses as a percentage of total net revenues were due primarily to
the growth in total net revenues. The Company expects to continue to expand its
field sales and marketing efforts, its third party value added reseller ("VAR")
distribution channel and its operations outside the United States and,
therefore, anticipates that sales and marketing expenditures will increase in
absolute dollars in the future. In addition, sales and marketing expenses as a
percentage of total net revenues may fluctuate between periods due to varying
levels of expenditures to build the sales and marketing organizations.
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GENERAL AND ADMINISTRATIVE
General and administrative expenses were $1.2 million and $629,000, or
8.5% and 9.1% of total net revenues, for the quarters ended June 30, 1997 and
1996, respectively. General and administrative expenses were $2.2 million and
$1.1 million, or 8.4% and 8.9% of total net revenues, for the six months ended
June 30, 1997 and 1996, respectively. General and administrative expenses
consist primarily of salaries and other related expenses of administrative,
executive and financial personnel and outside professional fees. The increases
in absolute dollars for the comparable periods were attributable primarily to
the addition of staff, increased costs associated with expansion of information
systems to support the growth of the Company's business and increased costs to
take on the additional responsibilities associated with being a public company.
The Company expects to continue to expand its staffing, information systems and
other items related to infrastructure and, therefore, anticipates that general
and administrative expenditures will increase in absolute dollars in the future.
INTEREST INCOME, NET
Interest income, net was $502,000 and $351,000 for the quarters ended
June 30, 1997 and 1996, respectively. Interest income, net for the six months
ended June 30, 1997 and 1996 was $994,000 and $402,000, respectively. The
increases from 1996 to 1997 were due primarily to increases in average
investment balances as a result of the investment of the proceeds from the
Company's initial public offering in May 1996.
PROVISION FOR INCOME TAXES
The provision for income taxes was $76,000 and $6,000 for the quarters
ended June 30, 1997 and 1996, respectively. The provision for income taxes was
$129,000 and $8,000 for the six months ended June 30, 1997 and 1996,
respectively. For the three and six months ended June 30, 1997, income taxes
have been provided based upon an estimated annualized effective tax rate of 8%
applied to earnings for the period, primarily reflecting the benefit of
available net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
From inception through April 1996, the Company financed its operations
and met its capital expenditure requirements primarily through the private sales
of preferred stock, totaling $24.1 million. On May 2, 1996, the Company
completed its initial public offering of 2,875,000 shares of its common stock at
a price of $15.00 per share. Proceeds to the Company from this offering were
approximately $38.9 million, net of underwriting discounts and other offering
costs. At June 30, 1997, the Company's cash, cash equivalents and short-term
investments (short-term, interest-bearing, investment-grade securities) totaled
$42.9 million.
At June 30, 1997, the Company also had available an $8.0 million
unsecured revolving bank line of credit agreement which expires in December 1997
and contains
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certain financial covenants, with which the Company was in compliance.
Borrowings accrue interest at the bank's prime rate. As of June 30, 1997, there
were no borrowings outstanding under this line of credit.
For the six months ended June 30, 1997, operating activities used cash
of $691,000, resulting primarily from an increase in accounts receivable,
partially offset by net income and depreciation and amortization. Investing
activities used cash of $6.9 million for the net purchase of $4.4 million in
short-term investments and the purchase of $2.4 million in property and
equipment. The Company expects that its capital expenditures will increase as
the Company's employee base grows. Net cash generated from financing activities
of $1.2 million was related primarily to proceeds from the issuance of the
Company's common stock through its Employee Stock Purchase Plan and stock option
exercises.
At June 30, 1997, the Company's working capital was $45.7 million. The
Company has no significant capital spending or purchase commitments other than
normal purchase commitments and commitments under its operating and capital
leases. The Company believes that its working capital, together with its bank
line of credit and anticipated cash flows from operations, if any, will be
sufficient to meet its working capital and capital expenditure requirements for
at least the next twelve months.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Except for the historical information contained in this Form 10-Q, the
matters discussed herein are forward-looking statements. These forward-looking
statements concern matters which include, but are not limited to, the
sustainability of historical revenue growth rates, the Company's expected mix of
revenues, expected gross margins on services and other revenues, certain
expected operating expense levels and the Company's liquidity and capital needs.
These matters involve risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. The revenue
levels, results of operations and growth rates achieved during the quarter and
six months ended June 30, 1997 are not necessarily indicative of the results
that may be achieved in any future period. There can be no assurance that the
Company will sustain profitability or experience growth in revenues in any
future quarter. The Company's revenues, margins and operating results have
fluctuated in the past, and are expected to continue to fluctuate in the future,
on an annual and quarterly basis as a result of a number of factors, such as
demand for the Company's products, including new products and product
enhancements, the mix of products and services sold, the mix of distribution
channels through which the Company's products are sold, customer order deferrals
in anticipation of new products, purchasing patterns of value added resellers
and customers, Company decisions regarding hiring and other expenses and
competitive conditions in the industry. In particular, the Company plans to
increase its operating expenses to expand its sales and marketing operations,
expand its distribution channels, fund greater levels of product development,
broaden its consulting services and customer support capabilities and increase
its administrative infrastructure. A relatively high percentage of the Company's
expenses is fixed in the short term as the Company's expense levels are based,
in part, on its expectations as to future revenues. If
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revenues fall below expectations, expenditure levels could be disproportionately
high as a percentage of total net revenues, and operating results would be
immediately and adversely affected.
The Company historically has operated with little backlog because its
products are generally shipped as orders are received. As a result, license
revenues in any quarter depend on the volume and timing of, and the Company's
ability to fill, orders received in that quarter. Individual orders for the
Company's products typically are for relatively large dollar amounts. The
Company also believes the purchase of its products is relatively discretionary
and generally involves a significant commitment of capital resources. Therefore,
any downturn in any potential customer's business, or any loss or delay of
individual orders for any reason, would have a significant impact on the
Company's revenues and quarterly results. In addition, because the Company
typically recognizes a substantial portion of its total revenue from
transactions booked and shipped in the last weeks, or even days, of the quarter,
the magnitude of quarterly fluctuations may not become evident until very late
in a particular quarter. Revenues are difficult to forecast because the market
for the Company's products is rapidly evolving.
Based upon all of the foregoing, the Company believes that its
quarterly revenues, expenses and operating results could vary significantly in
the future and that period-to-period comparisons should not be relied upon as
indications of future performance. There can be no assurance that the Company
will be able to grow in future periods or that it will be able to sustain its
level of total net revenues or its rate of revenue growth on a quarterly or
annual basis. It is likely that, in some future quarters, the Company's
operating results will be below the expectations of stock market analysts and
investors. In such event, the price of the Company's common stock could be
materially adversely affected.
The Company's future success will depend on its ability to design,
develop, test, sell and support new software products and enhancements of
current products on a timely basis in response to changing customer needs,
competition, technological developments and emerging industry standards. The
current versions of the Company's software products run on IBM Corporation's
OS/2 operating system. The Company believes that some potential customers will
not license the Company's products unless and until it runs on an alternative
operating system. Accordingly, the Company is devoting significant engineering
and research and development resources to design and develop versions of its
products to run on the Microsoft Windows NT operating system. It is possible
that the Company's intention to develop a Windows NT-based version of its
products will cause potential customers to defer or forgo purchases of current
or future versions of these products, which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's future success, particularly in Web and Intranet applications, will
depend upon the timely and successful completion of this development and the
ability of the Company to provide a Windows NT-based version of its products
with an adequate level of performance and functionality. There can be no
assurance that the Company will be successful in developing, on a timely basis
or at all, a fully functional Windows NT-based version of its products or that
such versions, if developed, will achieve customer acceptance. Failure by the
Company to develop Windows NT-based versions successfully and in a
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timely manner would have a material adverse effect on the Company's business,
financial condition and results of operations.
In March 1996, the Company received a letter from Syntellect Technology
Corporation ("Syntellect") inviting the Company to negotiate a license of
certain of Syntellect's patents. Since then, Syntellect has called additional
Syntellect patents to the Company's attention. Based on its investigation of the
patents referenced in Syntellect's letter, the Company believes that it has
substantial arguments that it does not violate any valid claims of the
Syntellect patents.
In April 1996, the Company received a letter from Lucent Technologies
Inc. ("Lucent") inviting the Company to negotiate a license of Lucent's patents.
Since then, Lucent has asserted that it believes that certain of the Company's
products infringe certain of Lucent's patents and has offered to license those
patents to the Company for a substantial payment. Lucent and the Company are
discussing Lucent's assertions. Lucent is examining other patents it holds to
determine whether to make further assertions to the Company. Based on its
investigation of the patents referenced in Lucent's April 1996 letter, the
Company believes that it has substantial arguments that it does not violate any
valid claims of such Lucent patents.
There can be no assurance, however, that the Company will not be found
to infringe any of the patents identified by Syntellect or Lucent. If the
Company is required to seek licenses on any of these patents, there can be no
assurance that the costs associated with such licenses, if available, would not
have a material adverse effect on the Company's business, financial condition or
results of operations. In the event that the Company cannot come to an agreement
with these parties, the Company may be drawn into litigation with such parties.
There can be no assurance that the costs associated with participating in or
settling such litigation would not have a material adverse effect on the
Company's business, financial condition or results of operations. In the future,
the Company may receive additional communications from these or other parties
asserting that the Company's products, trademarks or other proprietary rights
require a license of intellectual property rights or infringe, or may infringe,
on their property rights. As the number of software products in the industry
increases, and the functionality of these products further overlaps, the Company
believes that software developers may become increasingly subject to
infringement claims. Any such claims, with or without merit, could be time
consuming, result in costly litigation, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, or at all, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
An integral part of the Company's strategy is to develop multiple
distribution channels, including a field sales force, VARs and OEMs. The Company
intends to increase its reliance on third-party distribution partners in the
future. The Company is expending and intends to continue to expend significant
resources to develop the VAR channel. VARs are not, however, subject to any
minimum purchase or resale requirements and can cease marketing the Company's
products at any time. Certain VARs also offer competing
-14-
<PAGE> 15
products that they produce or that are produced by third parties. There can be
no assurance that the Company's existing VARs will continue to provide the level
of services and technical support necessary to provide a complete self service
solution to the Company's customers or that they will not emphasize their own or
third-party products to the detriment of the Company's products. The loss of
VARs, the failure of such parties to perform under agreements with the Company
or the inability of the Company to attract and retain new VARs with the
technical, industry and application expertise required to market the Company's
products successfully in the future could have a material adverse effect on the
Company's business, financial condition and results of operations. To the extent
that the Company is successful in increasing its sales through VARs, those sales
will be at discounted rates, and revenue to the Company for each such sale will
be less than if the Company had licensed the same products to the customer
directly.
In addition to the factors discussed above, among the other factors
that could cause actual results to differ materially are the following: demand
for and market acceptance of application products; the Company's ability to
deliver on time, and market acceptance of, new products or upgrades of existing
products; customer order deferrals in anticipation of new products; the timing
of, or delay in, large customer orders; continued availability of technology and
intellectual property license rights; changes in the mix of distribution
channels through which the Company's products are offered; competitive
conditions in the industry; risks associated with global operations; general
economic conditions; and the "Business Risks" listed from time to time in
reports that the Company files with the U.S. Securities and Exchange Commission,
including but not limited to the Company's Form 10-K for the fiscal year ended
December 31, 1996.
-15-
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
- -------------------------------------------------------------------------------
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders on May 8,
1997.
(b) The Company's stockholders voted upon the following matters:
(i) Election of directors. All nominees were elected, with
the votes indicated below:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Jeffrey M. Crowe 13,935,714 18,554
Stephen M. Berkley 13,935,714 18,554
Tench Coxe 13,935,364 18,904
Stewart A. Schuster 13,935,364 18,904
</TABLE>
(ii) Approval of an amendment to the 1996 Equity Incentive Plan
to increase the number of shares of Common Stock reserved
for issuance thereunder by 1,300,000 shares, from
1,000,000 shares to 2,300,000 shares. 9,523,012 votes were
cast in favor of the amendment, 2,320,128 votes were cast
against and zero votes were withheld; there were 4,873
abstentions and 2,106,255 broker non-votes.
-16-
<PAGE> 17
(iii) Approval of an amendment to the 1996 Employee Stock
Purchase Plan to increase the number of shares of Common
Stock reserved for issuance thereunder by 300,000 shares,
from 300,000 shares to 600,000 shares. 11,785,204 votes
were cast in favor of the amendment, 80,889 votes were
cast against and zero votes were withheld; there were
10,548 abstentions and 2,077,627 broker non-votes.
(iv) Ratification of selection of independent auditors. The
stockholders ratified the appointment of KPMG Peat Marwick
LLP as the Company's independent auditors to perform the
audit of the Company's financial statements for the year
ending December 31, 1997. 13,929,979 votes were cast in
favor of the amendment, 13,950 votes were cast against and
zero votes were withheld; there were 10,339 abstentions
and zero broker non-votes.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are being filed as part of this Report:
<TABLE>
<S> <C>
10.02 Registrant's 1996 Equity Incentive Plan and related documents (1)
10.03 Registrant's Directors Stock Option Plan and related documents
10.04 Registrant's 1996 Employee Stock Purchase Plan (2)
11.01 Statement of Net Income (Loss) Per Share
27.01 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
No report on Form 8-K has been filed for the quarterly period
ended June 30, 1997.
- -------------------
(1) Incorporated by reference to Exhibit 4.03 to Registrant's
Registration Statement on Form S-8 (No. 333-31833), filed on
July 22, 1997.
(2) Incorporated by reference to Exhibit 4.04 to Registrant's
Registration Statement on Form S-8 (No. 333-31833), filed on
July 22, 1997.
-17-
<PAGE> 18
- -------------------------------------------------------------------------------
SIGNATURES
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EDIFY CORPORATION
Date: August 13, 1997 By: /s/ Stephanie A. Vinella
----------------------------
Stephanie A. Vinella
Vice President of Finance and Administration,
Chief Financial Officer and Secretary
-18-
<PAGE> 19
- -------------------------------------------------------------------------------
EDIFY CORPORATION
FORM 10-Q
EXHIBIT INDEX
- -------------------------------------------------------------------------------
EXHIBITS
10.03 Registrant's Directors Stock Option Plan and related documents
11.01 Statement of Net Income (Loss) Per Share
27.01 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.03
EDIFY CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
As Adopted on February 29, 1996 and
Amended March 13, 1997 and July 21, 1997
1. PURPOSE. This 1996 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for nonemployee members of the Board of
Directors of Edify Corporation (the "COMPANY"), who are described in Section 6.1
below, by granting such persons options to purchase shares of stock of the
Company.
2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board of Directors of the Company (the "BOARD"), this Plan will become effective
on the time and date (the "EFFECTIVE DATE") on which the registration statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), to register the
initial public offering of the Company's Common Stock is declared effective by
the SEC; provided, however, that if the Effective Date does not occur on or
before December 31, 1996, this Plan and any Options granted hereunder will
terminate. This Plan shall be approved by the stockholders of the Company,
consistent with applicable laws, within twelve (12) months after the date this
Plan is adopted by the Board. Options ("OPTIONS") may be granted under this Plan
after the Effective Date provided that, in the event that stockholder approval
is not obtained within the time period provided herein, this Plan, and all
Options granted hereunder, shall terminate. No Option that is issued as a result
of any increase in the number of shares authorized to be issued under this Plan
shall be exercised prior to the time such increase has been approved by the
stockholders of the Company and all such Options granted pursuant to such
increase shall similarly terminate if such stockholder approval is not obtained.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall
be nonqualified stock options ("NQSOS"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "SHARES") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 100,000
Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the term
of this Plan, the Company shall reserve and keep available such number of Shares
as shall be required to satisfy the requirements of outstanding Options granted
under this Plan; provided, however that if the aggregate number of Shares
subject to outstanding Options granted under this Plan plus the aggregate number
of Shares previously issued by the Company pursuant to the exercise of Options
granted under this Plan equals or exceeds the Maximum Number of Shares, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "COMMITTEE"). As used in this Plan, references to the Committee shall
mean either such Committee or the Board if no Committee has been established.
The interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options shall be granted only to directors of
the Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 18 below (each
such person referred to as an "OPTIONEE").
<PAGE> 2
Edify Corporation
1996 Directors Stock Option Plan
6.2 Initial Grant. Each Optionee who on or after the Effective
Date first becomes a member of the Board will automatically be granted an Option
for 15,000 Shares (the "INITIAL GRANT") on the date such Optionee first becomes
a member of the Board.
6.3 Succeeding Grants. On the Effective Date and at each Annual
Meeting of the Company thereafter, if the Optionee is still a member of the
Board and has served continuously as a member of the Board since the date of the
Optionee's Initial Grant, or if the Optionee did not receive an Initial Grant,
the Optionee is a member of the Board on the Effective Date or has served
continuously as a member of the Board since the Effective Date, the Optionee
will automatically be granted an Option for 7,500 Shares (a "SUCCEEDING GRANT").
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and
to Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("GRANT") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. The date an Optionee receives an Initial Grant or a
Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) Initial Grants. Each Option that is an Initial Grant
will vest as to two and eight one-hundredths percent (2.08%) per month on the
last date of each month following the Initial Grant, so long as the Optionee
continuously remains a director or a consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to
two and eight one-hundredths percent (2.08%) per month on the last date of each
month following the Succeeding Grant, so long as the Optionee continuously
remains a director or a consultant of the Company.
7.3 Exercise Price. The exercise price of an Option shall be the
Fair Market Value (as defined in Section 18.4) of the Shares, at the time that
the Option is granted.
7.4 Termination of Option. Except as provided below in this
Section, each Option shall expire ten (10) years after its Start Date (the
"EXPIRATION DATE"). The Option shall cease to vest and unvested Options shall
expire when the Optionee ceases to be a member of the Board or a consultant of
the Company. The date on which the Optionee ceases to be a member of the Board
or a consultant of the Company shall be referred to as the "TERMINATION DATE".
An Option may be exercised after the Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to be a
member of the Board or consultant of the Company for any reason except death or
disability, then each vested Option (as defined in Section 7.2 of this Plan)
then held by such Optionee may be exercised by the Optionee within seven (7)
months after the Termination Date, but in no event later than the Expiration
Date.
(b) Death or Disability. If the Optionee ceases to be a
member of the Board or consultant of the Company because of the death of the
Optionee or the disability of the Optionee within the meaning of Section
22(e)(3) of the Internal Revenue Code of 1986, as amended (the "CODE"), then
each vested Option (as defined in Section 7.2 of this Plan) then held by such
Optionee may be exercised by the Optionee (or the Optionee's legal
representative) within twelve (12) months after the Termination Date, but in no
event later than the Expiration Date.
8. EXERCISE OF OPTIONS.
8.1 Exercise Period. Subject to the provisions of Section 8.5 of
the Plan, Options shall be exercisable immediately (subject to repurchase
pursuant to Section 10 of the Plan).
-2-
<PAGE> 3
Edify Corporation
1996 Directors Stock Option Plan
8.2 Notice. Options may be exercised only by delivery to the
Company of an exercise agreement in a form approved by the Committee stating the
number of Shares being purchased, the restrictions imposed on the Shares and
such representations and agreements regarding the Optionee's investment intent
and access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.3 Payment. Payment for the Shares purchased upon exercise of
an Option may be made (a) in cash or by check; (b) by surrender of shares of
Common Stock of the Company that have been owned by the Optionee for more than
six (6) months (and which have been paid for within the meaning of SEC Rule 144
and, if such shares were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares) or were obtained by
the Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.4 Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
8.5 Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
(a) An Option shall not be exercisable until such time as this
Plan (or, in the case of Options granted pursuant to an amendment increasing the
number of shares that may be issued pursuant to this Plan, such amendment) has
been approved by the stockholders of the Company in accordance with Section 16
hereof.
(b) An Option shall not be exercisable unless such exercise is in
compliance with the Securities Act and all applicable state securities laws, as
they are in effect on the date of exercise.
(c) The Committee may specify a reasonable minimum number of
Shares that may be purchased upon any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or by the Optionee's
guardian or legal representative, unless otherwise permitted by the Committee.
No Option may be sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of descent and distribution.
10. RESTRICTIONS ON SHARES. The Company shall reserve to itself and/or
its assignee(s) in the Grant a right to repurchase all unvested Shares held by
an Optionee if the Optionee ceases to be a member of the Board or a consultant
of the Company. The Company shall exercise such repurchase right within ninety
(90) days after the Optionee's Termination Date for cash at the Optionee's
original exercise price.
11. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial
-3-
<PAGE> 4
Edify Corporation
1996 Directors Stock Option Plan
statements of the Company, at such time after the close of each fiscal year of
the Company as they are released by the Company to its stockholders.
12. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be issued upon exercise
of any Option and any resulting fractions of a Share shall be rounded up to the
nearest whole Share.
13. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
14. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act, compliance with all other applicable state
securities laws and compliance with the requirements of any stock exchange or
national market system on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration or qualification requirement of any state securities laws,
stock exchange or national market system.
15. ASSUMPTION OR REPLACEMENT OF OPTIONS BY SUCCESSOR. In the event of
(a) a dissolution or liquidation of the Company, (b) a merger or consolidation
in which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed or replaced by the
successor corporation, which assumption will be binding on all Optionees), (c) a
merger in which the Company is the surviving corporation but after which the
stockholders of the Company (other than any stockholder which merges (or which
owns or controls another corporation which merges) with the Company in such
merger) cease to own their shares or other equity interests in the Company, (d)
the sale of substantially all of the assets of the Company, or (e) any other
transaction which qualifies as a "corporate transaction" under Section 424 of
the Code wherein the stockholders of the Company give up all of their equity
interests in the Company (except for the acquisition, sale or transfer of all or
substantially all of the outstanding shares of the Company from or by the
stockholders of the Company) any or all outstanding Options may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Options or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Options).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Options, as provided above, pursuant to a transaction described in this Section
15, such Options will expire on such transaction at such time and on such
conditions as the Committee will determine.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan (but may not terminate or amend the terms of any
outstanding option without the consent of the Optionee); provided, however, that
the Committee shall not, without the approval of the stockholders of the
Company, increase the total number of Shares available under this Plan (except
by operation of the provisions of Sections 4 and 12 above) or change the class
of persons eligible to receive Options. In any case, no amendment of this Plan
may adversely affect any then outstanding Options or any unexercised portions
thereof without the written consent of the Optionee.
17. TERM OF PLAN. Options may be granted pursuant to this Plan from time to
time within a period of ten (10) years from the date this Plan is adopted by the
Board.
-4-
<PAGE> 5
Edify Corporation
1996 Directors Stock Option Plan
18. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
18.1 "Parent" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
18.2 "Subsidiary" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
18.3 "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
18.4 "Fair Market Value" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its closing price on the Nasdaq
National Market on the date of determination as
reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its closing
price on the date of determination on the principal
national securities exchange on which the Common Stock
is listed or admitted to trading as reported in The
Wall Street Journal;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on the
date of determination as reported in The Wall Street
Journal; or
(d) in the case of an Initial Grant made on the Effective
Date or a Succeeding Grant made on the Effective Date,
the price determined by the Pricing Committee of the
Board for the Common Stock to be sold by the Company's
underwriters; or
(e) if none of the foregoing is applicable, by the
Committee in good faith.
-5-
<PAGE> 6
INITIAL GRANT
EDIFY CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
DIRECTORS NONQUALIFIED INITIAL STOCK OPTION GRANT
This Stock Option Grant (this "Grant") is made and entered into as of
the date of grant set forth below (the "Date of Grant") by and between Edify
Corporation, a Delaware corporation (the "Company"), and the Optionee named
below ("Optionee").
Optionee:
Optionee's Address: ________________________________________
________________________________________
________________________________________
15,000
Total Shares Subject to Option: ________________________________________
Exercise Price Per Share: ________________________________________
Date of Grant: ________________________________________
Expiration Date: ________________________________________
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
(this "Option") to purchase up to the total number of shares of Common Stock of
the Company set forth above (collectively, the "Shares") at the exercise price
per share set forth above (the "Exercise Price"), subject to all of the terms
and conditions of this Grant and the Company's 1996 Directors Stock Option Plan
(the "Plan"). Unless otherwise defined herein, capitalized terms used herein
shall have the meanings ascribed to them in the Plan.
2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions
of the Plan and this Grant, this Option shall be exercisable immediately
(subject to repurchase pursuant to Section 10 of the Plan). Subject to the terms
and conditions of the Plan and this Grant, this Option shall vest as to two and
eight one-hundredths percent (2.08%) of the Shares per month on the last date of
each month following the date of grant so long as the Optionee continuously
remains a member of the Board of Directors (a "Board Member") or a consultant of
the Company.
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless
such exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on
<PAGE> 7
Edify Corporation
Directors Stock Option Grant - Initial Grant
the date of exercise, and the requirements of any stock exchange or national
market system on which the Company's Common Stock may be listed at the time of
exercise. Optionee understands that the Company is under no obligation to
register, qualify or list the Shares with the SEC, any state securities
commission or any stock exchange or national market system to effect such
compliance.
4. TERMINATION OF OPTION. Except as provided below in this Section, this
Option shall terminate and may not be exercised if Optionee ceases to be a Board
Member or consultant of the Company. The date on which Optionee ceases to be a
Board Member or consultant of the Company shall be referred to as the
"Termination Date."
4.1 Termination Generally. If Optionee ceases to be a Board
Member or consultant of the Company for any reason except death or disability,
then this Option, to the extent that it has vested (as defined in the Plan and
this Grant), may be exercised by Optionee within seven (7) months after the
Termination Date, but in no event later than the Expiration Date.
4.2 Death or Disability. If Optionee ceases to be a Board Member
or consultant of the Company because of the death of Optionee or the disability
of Optionee within the meaning of Section 22(e)(3) of the Code, then this
Option, to the extent that it has vested (as defined in the Plan and this
Grant), may be exercised by Optionee (or Optionee's legal representative) within
twelve (12) months after the Termination Date, but in no event later than the
Expiration Date.
5. MANNER OF EXERCISE.
5.1 Exercise Agreement. This Option shall be exercisable by
delivery to the Company of an executed written Directors Stock Option Exercise
Agreement in the form attached hereto as Exhibit A, or in such other form as may
be approved by the Committee, which shall set forth Optionee's election to
exercise some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
5.2 Payment. Payment for the Shares purchased upon exercise of
this Option may be made (a) in cash or by check; (b) by surrender of shares of
Common Stock of the Company that have been owned by Optionee for more than six
(6) months (and which have been paid for within the meaning of SEC Rule 144 and,
if such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
Exercise Price of the Option; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and a NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby the NASD
-2-
<PAGE> 8
Edify Corporation
Directors Stock Option Grant - Initial Grant
Dealer irrevocably commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or (f) by any combination of the foregoing.
5.3 Withholding Taxes. Prior to the issuance of the Shares upon
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.
5.4 Issuance of Shares. Provided that such notice and payment
are in form and substance satisfactory to counsel for the Company, the Company
shall cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with stock powers or
other instruments of transfer approved by the Committee appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
this Option shall be exercisable only by Optionee or by Optionee's guardian or
legal representative, unless otherwise permitted by the Committee. This Option
may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this
Grant shall be submitted by Optionee or the Company to the Committee that
administers the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Committee shall be final and
binding on the Company and on Optionee. Nothing in the Plan or this Grant shall
confer on Optionee any right to continue as a Board Member.
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
Agreement in the form attached hereto as Exhibit A, and the terms and conditions
thereof, are incorporated herein by this reference. This Grant, the Plan and the
Directors Stock Option Exercise Agreement constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior understandings and agreements with respect to such
subject matter.
EDIFY CORPORATION
By: ________________________________________________
Name: _______________________________________________
Title: _____________________________________________
-3-
<PAGE> 9
Edify Corporation
Directors Stock Option Grant - Initial Grant
ACCEPTANCE OF STOCK OPTION GRANT
Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee has been
advised by the Company that Optionee should consult a qualified tax advisor
prior to such exercise or disposition.
____________________________________
________________________, Optionee
[ACCEPTANCE SIGNATURE PAGE TO DIRECTORS
NONQUALIFIED INITIAL STOCK OPTION GRANT]
-4-
<PAGE> 10
SUCCEEDING GRANT
EDIFY CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
DIRECTORS NONQUALIFIED SUCCEEDING STOCK OPTION GRANT
This Stock Option Grant (this "Grant") is made and entered into as of
the date of Grant set forth below (the "Date of Grant") by and between Edify
Corporation, a Delaware corporation (the "Company"), and the Optionee named
below ("Optionee").
Optionee: __________________________________________
Optionee's Address: __________________________________________
__________________________________________
Total Shares Subject to Option: __________________________________________
7,500
Exercise Price Per Share: __________________________________________
Date of Grant: __________________________________________
Expiration Date: __________________________________________
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
(this "Option") to purchase up to the total number of shares of Common Stock of
the Company set forth above (collectively, the "Shares") at the exercise price
per share set forth above (the "Exercise Price"), subject to all of the terms
and conditions of this Grant and the Company's 1996 Directors Stock Option Plan
(the "Plan"). Unless otherwise defined herein, capitalized terms used herein
shall have the meanings ascribed to them in the Plan.
2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions
of the Plan and this Grant, this Option shall be exercisable immediately
(subject to repurchase pursuant to Section 10 of the Plan). Subject to the terms
and conditions of the Plan and this Grant, this Option shall vest as to two and
eight one-hundredths percent (2.08%) of the Shares per month on the last date of
each month following the date of grant so long as the Optionee continuously
remains a member of the Board of Directors (a "Board Member") or a consultant of
the Company.
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless
such exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which
<PAGE> 11
Edify Corporation
Directors Stock Option Grant - Succeeding Grant
the Company's Common Stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
or national market system to effect such compliance.
4. TERMINATION OF OPTION. Except as provided below in this Section, this
Option shall terminate and may not be exercised if Optionee ceases to be a Board
Member or consultant of the Company. The date on which Optionee ceases to be a
Board Member or consultant of the Company shall be referred to as the
"Termination Date."
4.1 Termination Generally. If Optionee ceases to be a Board
Member or consultant of the Company for any reason except death or disability,
then this Option, to the extent that it has vested (as defined in the Plan and
this Grant), may be exercised by Optionee within seven (7) months after the
Termination Date, but in no event later than the Expiration Date.
4.2 Death or Disability. If Optionee ceases to be a Board Member
or consultant of the Company because of the death of Optionee or the disability
of Optionee within the meaning of Section 22(e)(3) of the Code, then this
Option, to the extent that it has vested (as defined in the Plan and this
Grant), may be exercised by Optionee (or Optionee's legal representative) within
twelve (12) months after the Termination Date, but in no event later than the
Expiration Date.
5. MANNER OF EXERCISE.
5.1 Exercise Agreement. This Option shall be exercisable by
delivery to the Company of an executed written Directors Stock Option Exercise
Agreement in the form attached hereto as Exhibit A, or in such other form as may
be approved by the Committee, which shall set forth Optionee's election to
exercise some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
5.2 Payment. Payment for the Shares purchased upon exercise of
this Option may be made (a) in cash or by check; (b) by surrender of shares of
Common Stock of the Company that have been owned by Optionee for more than six
(6) months (and which have been paid for within the meaning of SEC Rule 144 and,
if such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
Exercise Price of the Option; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and a NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby the NASD
-2-
<PAGE> 12
Edify Corporation
Directors Stock Option Grant - Succeeding Grant
Dealer irrevocably commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or (f) by any combination of the foregoing.
5.3 Withholding Taxes. Prior to the issuance of the Shares upon
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.
5.4 Issuance of Shares. Provided that such notice and payment
are in form and substance satisfactory to counsel for the Company, the Company
shall cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with stock powers or
other instruments of transfer approved by the Committee appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
this Option shall be exercisable only by Optionee or by Optionee's guardian or
legal representative, unless otherwise permitted by the Committee. This Option
may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this
Grant shall be submitted by Optionee or the Company to the Committee that
administers the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Committee shall be final and
binding on the Company and on Optionee. Nothing in the Plan or this Grant shall
confer on Optionee any right to continue as a Board Member.
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
Agreement in the form attached hereto as Exhibit A, and the terms and conditions
thereof, are incorporated herein by this reference. This Grant, the Plan and the
Directors Stock Option Exercise Agreement constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior understandings and agreements with respect to such
subject matter.
EDIFY CORPORATION
By: ________________________________________________
Name: _______________________________________________
Title: _____________________________________________
-3-
<PAGE> 13
Edify Corporation
Directors Stock Option Grant - Succeeding Grant
ACCEPTANCE OF STOCK OPTION GRANT
Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee has been
advised by the Company that Optionee should consult a qualified tax advisor
prior to such exercise or disposition.
___________________________________
________________________, Optionee
[ACCEPTANCE SIGNATURE PAGE TO DIRECTORS NONQUALIFIED
SUCCEEDING STOCK OPTION GRANT]
-4-
<PAGE> 14
EXHIBIT A
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
<PAGE> 15
EXHIBIT A
EDIFY CORPORATION
1996 DIRECTORS STOCK OPTION PLAN (THE "PLAN")
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
I hereby elect to purchase the number of shares of Common Stock of EDIFY
CORPORATION (the "Company") as set forth below:
<TABLE>
<S> <C>
Optionee: _______________________________ Number of Shares Purchased: ________________
Social Security Number: _________________ Purchase Price per Share: __________________
Address:_________________________________ Aggregate Purchase Price: __________________
________________________________________________ Date of Stock Option Grant: ________________
Type of Stock Option: Nonqualified Stock Option Exact Name of Title to Shares: _____________
</TABLE>
1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Directors Nonqualified
Stock Option Grant referred to above (the "Grant") as follows (check as
applicable and complete):
[ ] in cash or by check in the amount of $___________________________,
receipt of which is acknowledged by the Company;
[ ] by delivery of _______________________ fully-paid, nonassessable and
vested shares of the Common Stock of the Company owned by Optionee for
at least six (6) months prior to the date hereof (and which have been
paid for within the meaning of SEC Rule 144), or obtained by Optionee
in the open public market, and owned free and clear of all liens,
claims, encumbrances or security interests, valued at the current Fair
Market Value of $___________________ per share;
[ ] by the waiver hereby of ompensation due or accrued to Optionee for
services rendered in the amount of $_______________________________;
[ ] through a "same-day-sale" commitment, delivered herewith, from
Optionee and the NASD Dealer named therein, in the amount of
$______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and
the NASD Dealer named therein, in the amount of
$______________________________________.
2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES.
OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S)
OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE
SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
4. ENTIRE AGREEMENT. The Plan and the Grant are incorporated herein by
reference. This Agreement, the Plan and the Grant constitute the entire
agreement of the parties and supersede in their entirety all prior
understandings and agreements of the Company and Optionee with respect to the
subject matter hereof, and are governed by California law except for that body
of law pertaining to conflict of laws.
Date:______________________________ ___________________________________
Signature of Optionee
<PAGE> 16
EDIFY CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
SPOUSE'S CONSENT
I acknowledge that I have read the foregoing Directors Stock Option
Exercise Agreement (the "Agreement") and that I know its contents. I hereby
consent to and approve all the provisions of the Agreement and agree that the
shares of the Common Stock of Edify Corporation purchased thereunder (the
"Shares") and any interest I may have in such Shares are subject to all the
provisions of the Agreement. I will take no action at any time to hinder
operation of the Agreement on these Shares or any interest I may have on them.
____________________________________ Date:___________________________
Signature of Optionee's Spouse
____________________________________
Optionee's Name - Typed or Printed
___________________________________
Spouse's Name - Typed or Printed
<PAGE> 1
- -------------------------------------------------------------------------------
EDIFY CORPORATION EXHIBIT 11.01
STATEMENT OF NET INCOME (LOSS) PER SHARE
(In thousands, except per share data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) .................................................... $ 865 $ (484) $ 1,460 $ (1,051)
======== ======== ======== ========
Computations of weighted average common and dilutive common equivalent
shares outstanding:
Weighted average common shares outstanding (1) .................... 16,339 15,077 16,290 13,418
Shares relating to SAB No. 64 and 83 .............................. -- -- -- 926
Common equivalent shares from stock options ....................... 1,614 -- 1,658 --
-------- -------- -------- --------
Shares used in computing net income (loss) per share amounts ......... 17,953 15,077 17,948 14,344
======== ======== ======== ========
Net income (loss) per share .......................................... $ 0.05 $ (0.03) $ 0.08 $ (0.07)
======== ======== ======== ========
</TABLE>
- --------------
(1) Includes convertible preferred stock (if converted method).
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 27,314
<SECURITIES> 15,572
<RECEIVABLES> 12,762
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,948
<PP&E> 6,735
<DEPRECIATION> 0
<TOTAL-ASSETS> 63,917
<CURRENT-LIABILITIES> 11,233
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 52,116
<TOTAL-LIABILITY-AND-EQUITY> 63,917
<SALES> 7,807
<TOTAL-REVENUES> 13,537
<CGS> 205
<TOTAL-COSTS> 4,479
<OTHER-EXPENSES> 8,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (502)
<INCOME-PRETAX> 941
<INCOME-TAX> 76
<INCOME-CONTINUING> 865
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 865
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
